When states began cutting federal unemployment benefits this summer, their governors argued that doing so would drive people back to work.
New research suggests that ending social benefits actually resulted in some people getting jobs but many more people not, putting them – and perhaps their countries’ economies – in a worse position.
A total of 26 states, all but one with Republican governors, have ended the extended unemployment benefits that have been in place since the beginning of the pandemic. Many entrepreneurs blame the benefits for keeping people from returning to work, while proponents argue that they provided a lifeline to people who lost their jobs during the pandemic.
The additional benefits are due to expire nationwide next month, although President Biden on Thursday encouraged high unemployment states to use separate federal funds to continue the programs.
To study the impact of the guidelines, a team of economists used data from Earnin, a financial services company, to review anonymized banking records of more than 18,000 low-income workers who received unemployment benefits in late April.
The researchers found that termination of benefits had an impact on employment: in the states that cut benefits, about 26 percent of people in the study were employed in early August, compared with about 22 percent of people in the states in which the services were continued.
But far more people couldn’t find work. In the 19 states that ended programs on which researchers had data, about two million people lost their benefits completely and one million had their payments cut. Of these, only about 145,000 people found jobs due to the lockdown. (The researchers argue that the actual number is likely even lower, since the workers they studied were most likely to have been affected by the loss of income and, therefore, may not have been representative of all benefit recipients.)
As a result of the cut in benefits, the unemployed fared worse on average. The researchers estimate that as a result of the change, workers lost an average of $ 278 a week in welfare benefits and made only $ 14 a week (not $ 14 an hour as previously reported here). They compensated for this by cutting their spending by $ 145 a week – a reduction of about 20 percent – and putting less money into their local economy.
“The job market didn’t burst after you kicked these people out,” said Michael Stepner, a University of Toronto economist and one of the study’s authors. “Most of these people can’t find work and it will be a long time before they get their income back.”
The results are in line with other recent studies that have found that the additional unemployment benefit had a measurable but small impact on the number of people working and looking for work. The next evidence will come on Friday morning when the Department of Labor releases state employment data in July.
Coral Murphy Marcos contributed to the coverage.